A proposed state budget for next year that eliminates this year’s education funding increase, pays out a $3,838 Permanent Fund Dividend and incurs a $1.52 billion deficit that wipes out more than half of the state’s budget reserve account was released Thursday by Gov. Mike Dunleavy.
The broad aspects of the Republican governor’s spending plan are similar to those that encountered significant resistance from a bipartisan Senate majority the past two years, which resulted in balanced budgets with increases in education funding and much smaller PFDs. A similar battle is likely during the coming session that begins next month, especially since the House will switch from a Republican-led majority to one led by Democrats.
Dunleavy, during a press conference Thursday afternoon at the Alaska State Capitol, said he’s introducing a budget for the fiscal year that starts next July 1 that has the same blueprint as recent years in order to comply with state statutes defining the amount of PFD payments, per-student education funding and other items.
“You have the PFDs in law, just like some of these other programs are law,” he said. “You don’t have enough revenue, but you have savings, so you have to make a choice as to whether you’re going to reduce education or reduce other aspects of the program to get that budget balanced.”
Senate President Gary Stevens, a Kodiak Republican who presides over a 14-member majority in the 20-member upper chamber, said in a prepared statement Thursday afternoon that “as always, the governor’s proposed budget is just the beginning of the process.”
“Throughout the upcoming legislative session, the Senate will focus on what is essential to Alaskans that serves their basic needs, supports public education, grows our economies, and finds solutions to many of the challenges we face,” his statement adds. “Just as we went through a successful and extensive budgeting process over the past two years, we will continue to look through our financial lens with bipartisanship and fiscal responsibility to protect our future.”
The Republican-led minorities of both the House and Senate issued statements Thursday afternoon that were generally supportive of the governor’s proposed budget.
Disappointment Dunleavy didn’t submit a more realistic budget proposal, based on how his previous ones have been drastically rewritten by the Legislature to ensure a balanced bottom line, was expressed by Sen. Jesse Kiehl, a Juneau Democrat and member of the Senate Finance Committee.
“If we have to take the first shot then we will,” he said. “And I sincerely hope he engages and we can work together. But what got laid on the table today isn’t really even where we need to start our work.”
Dunleavy’s proposed plan was released on the same day as the state’s fall revenue forecast, which forecasts oil prices of $73.86 per barrel for the current fiscal year, $70 next year and “stabilizing at $73” by 2035. Oil prices were $86.46 on June 30, the end of the previous fiscal year, and averaged $86.63 during fiscal 2023 and $91.41 during fiscal 2022 — a major rebound after prices averaged about $53 during the two previous years at the height of the COVID-19 pandemic.
“The Fall 2024 Revenue Forecast comes during a time of continued uncertainty due to recent geopolitical and financial events, causing volatile market conditions,” Department of Revenue Commissioner Adam Crum wrote in a cover letter summarizing the fall forecast.
A broad spectrum of lawmakers at the Capitol have frequently referred to the need for a sustainable long-term fiscal plan, especially given fluctuating and generally declining oil revenue that is a cornerstone of the state’s coffers. A 10-year plan published as part of Dunleavy’s budget plan shows the state’s $2.9 billion Constitutional Budget Reserve being $1 billion in debt in three years and $12 billion in debt by 2035.
While Alaska’s government wouldn’t be broke since the Permanent Fund has a balance of about $82.5 billion as of Thursday, the principal of that fund cannot be spent without amending the state constitution.
The dismal long-term forecast was questioned during Thursday’s press conference by Neil Steininger, a former budget director for Dunleavy who is now a Juneau Assembly member and correspondent for the Alaska Political Report.
“State statutes require that you produce a balanced budget, but they also require that your 10-year plan include the broad strokes of how you intend to address any long-term structural budget deficit,” Steininger told his former boss. “However, last year and again this year you’ve omitted any of those statutory required discussions and solutions, and you show that savings are effectively empty when you leave office. What policies do you plan to introduce over the next few years to ensure that Alaska’s next governor doesn’t inherit the same problems that you did and that you’ve been tackling over the last six years?”
Dunleavy responded by reiterating previously expressed optimism that President-elect Donald Trump and a Republican-led Congress will open more resource extraction activity such as oil drilling in Alaska.
“Again, I believe that the resource base of Alaska is a solution to the future,” Dunleavy said. “I believe an income tax on the people of Alaska, a sales tax on the people of Alaska, taking what’s left of the dividend from the people of Alaska — if that’s what’s going to happen I would suggest that we all invest in U-Haul, to be honest with you.”
Kiehl said the 10-year plan should have a more substantive concept for a stable financial future, and the governor has “an office of management budget of easily a dozen people and then budget professionals in each of 15 departments” that should have the expertise to craft such a plan.
“The kind of thinking that ‘I’m only responsible for government to the end of my term and as long as there’s enough savings to burn till the end of my term I don’t have any work to do’ — that’s how states get in trouble and we’re responsible for Alaska for generations to come,” he said.
Both Dunleavy and legislative leaders have stated energy will be one of the biggest issues during the coming session, where there is general agreement about generating more revenue and improving reliability of supplies within the state. The other top issue mentioned by both is education, where the views of the governor and legislative majorities sharply diverge.
Per-student education funding is set to revert to the $5,960 defined in the Base Student Allocation, which means all districts will see a significant drop from current year funding that contains a one-time $680 per-student increase that amounted to about $175 million statewide. A similar increase was passed the previous year by the Legislature, with Dunleavy vetoing half of the amount.
The increase this year resulted in an extra $6.7 million for the Juneau School District, which has an operating budget of roughly $70 million.
Dunleavy said Thursday he is willing to consider a permanent increase of $200 million to education funding if legislatures support his other education policy goals such as boosting support for charter schools and homeschooling — a similar stance he took last year on legislation he said he plans to reintroduce in modified form during the coming session.
• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.
